We expect MAHB's FY14 topline and EBITDA to surge 38% and 46% respectively vs its FY12 numbers, as KLIA2 is on track to commence operations by 1 May 2013. We see  KLIA2  as  a  game  changer  and  MAHB's cash  cow  from  FY14  onwards  in  the absence of major capex, which may see the airport operator generating annual free cash flow of at least RM420m. We maintain our BUY call, with a DCF-derived FV of RM8.00.  MAHB  is  the  top  pick  in  our  TRANSPORT  coverage  given  its  cash-generating business amid booming air travel.

Revenue boost. KLIA2, capable of handling up to 45m passengers, is expected to reach 50% capacity in its first year of operations. Come FY14, MAHB's revenue is projected to expand 38% from the RM2.151bn the company expects to register in 2012. A significant portion of the total  revenue will be derived from higher rental  to be collected from KLIA2 as  it  will  offer  more  than  four  times  the  retail  space  at  the  existing  LCCT.  Although  the company's operation costs are expected to surge by 32%, we expect the incremental flow to  EBITDA  to  be  immense,  with  EBITDA  ballooning  by  46%  from  RM840m  in  2012  to RM1.23bn in FY14.

An  aeropolis  in  the  making.  MAHB  enjoys  great  potential  in  developing  its  massive 22,156-acre  landbank.  In  the  near  term,  as  much  as  50  acres  may  be  allocated  for  a commercial  business district,  a  free  commercial  zone  for  warehousing and  logistics, and possibly  a  theme  park.  A  factory  outlet  and  a  Haj  pilgrimage  terminal  are  slated  for completion  sometime  end-2013  to  mid-2014. Within  the  next  five  years,  the  area  could also encompass a golf resort and an auto city.

Bidding  for  Stansted  Airport. We  are  negative on  MAHB's  bid  to buy  Stansted  Airport as it is a mature airport with Ryanair as its biggest client, accounting for almost two-thirds of  passenger  feed.  This  will  leave  little  room  to  potentially  increase  in  aeronautical charges. However, it has been speculated that any bids for Stansted would likely be via a joint bid with a consortium, as with other overseas airport stakes currently held by MAHB. As  such,  should  MAHB  be  successful  in  its  bid  for  the  airport,  the  acquisition  would  not make a big dent on its valuations.
 
BUY. Our DCF-derived FV is RM8.00, at a WACC of 9.1%. We maintain our BUY call on MAHB,  which  is  our  top  aviation  pick,  as  the  airport  operator  continues  to  ride  on  the resilient demand for air travel as well as its cash generating business.

Source: Kenanga